You have to be very discerning when you are leaving assets to your loved ones. There are different methods that you can utilize, and the optimal choice will vary on a case-by-case basis. With this in mind, we will look at the value of third party special needs trusts in this post.
Government Benefits
If you have a family member with special needs, you have to take government benefit eligibility into consideration. Many people with disabilities are enrolled in the Medicaid program. This is a jointly run federal/state government program that provides health insurance for people who have limited financial resources.
To qualify for Medicaid coverage, you must be able to prove that you do in fact have financial need. There are income and asset limits that you must stay within if you want to become eligible.
Clearly, if you have a disability, you are probably going to require ongoing care and treatment. Medical care can be extremely expensive over the course of a lifetime. Medicaid can be a lifeline for people with special needs.
Once someone becomes eligible for Medicaid coverage, that eligibility is not necessarily permanent. If a benefit recipient was to come into a windfall of money, eligibility could be lost.
This is something to keep in mind if you have someone with a disability on your inheritance list. If you simply named this person in your last will, he or she would receive a direct inheritance. There would be a significant change in financial status, and as a result, the inheritor could be deemed ineligible for need-based government benefits.
Third Party Special Needs Trusts
If you want to safely provide for someone with a disability who is enrolled in the Medicaid program, you could potentially fund a third party special needs trust.
When you create the trust agreement, you name a trustee to handle the trust administration tasks. People often use a corporate trustee, like a trust company or the trust department of a bank.
The trustee can utilize assets that have been conveyed into the trust to satisfy the supplemental needs of the beneficiary. These would be needs that are not being met by government benefits.
When there is a a third party special needs trust in place, the Medicaid program would not seek reimbursement after the death of the beneficiary.
It is possible for a person with special needs to fund his or her own special needs trust. This would be a first party or self-settled special needs trust. When this type of trust is created, Medicaid coverage would remain in place, but the program would seek reimbursement from the estate of the beneficiary after his or her passing.
Free Report on Special Needs Planning
If you would like to learn more about special needs planning, download our in-depth report on the subject. This report is being offered free of charge, and you can obtain your copy through this link: Smithtown NY Special Needs Planning.
Mark S. Eghrari, Estate Planning Attorney
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